tv Federal Reserve News Conference CSPAN December 22, 2013 1:35pm-2:46pm EST
what is the answer to the people who are hoping for that? >> two quick points following on this about the sanctions. i'm sure you are aware about the whole issue of scapegoating. some of what we are seeing is reminiscent of what we saw earlier when we were talking about government corruption. they hired some lower-level employee or mayor. there's is a lot of hammering about russia and what russia is doing in terms of pressuring ukraine. on the other hand, what are we doing to express our concern about this when we hear about us purchasing russian helicopters.
>> good point. it was only canceled because of congress and the administration that purchased the russian helicopters. on the issue of the demonstrators, we have been assured that those demonstrators who are under detention will be released. if there is further violence against the demonstrators, i am confident that the administration and congress would move forward with a style of legislation. as far as the reforms are
concerns, i am not sure that would be sufficient reason to generate sanctions early enough. they fired the mayor of key of anti-had nothing to do with the violence against the demonstrators. that is true. i think we need to proceed carefully and with measured steps. we need to make sure that we are not giving the russians propaganda. we must not intervene in internal affairs of a country -- i think we have to be very careful and measured in the steps that we take. we cannot react in an emotional fashion. i am absolutely appalled by what putin has done. i have pointed out those factors. i think we need to be very
careful that we are not appearing to be seeking confrontation. we know americans are tired because of iraq and afghanistan. we are going to have to display a firm, but in some ways patient, addressing of our relationship. i want to mention again that just in the last few days literally, we now hear of missiles and calendar out -- telling god -- kalingrad. there was a strategic move that they rejected a short time ago. watch many of the things that putin is doing. they are extremely aggressive, not to mention mr. snowden, which is sticking a thumb in our eye. we have to understand who and how we are dealing with. i do not leave we can portray that we are the world's
policemen and put out every fire. we do have to be firm and take measures preferably with our allies that they support and that we support and that obviously in this case, that is the european community. i know some people have accused me of being a defense hawk and all that. i think when we look back at other presidents, both republicans and democrats, who been very firm, and has taken actions that are both measured and effective, that is the best way to deal with this. i think there are some people that say the reason why putin is behaving the way he did it because there is no penalty for. there should be a penalty for
actions that putin takes, particularly in this so-called near abroad situation. i was inspired by these young people. if there's any doubt about how they feel about russia, the leader of the demonstrations -- they all turned on their cell phone lights and it was an amazing thing to see. the guy said, if you don't like russia, john. -- jump. it was interesting to see a quarter million people all jumping up and down in freezing weather. we think of ukraine and some americans and give it as a far off country. they are a western nation. these young people, they like the same lousy music. they have the same atrocious attire. they are as our young people have -- they are long -- aligned with the west.
basie russia and they don't want to be part of that society. that is why i am optimistic that at the end of the day, we will see a free and democratic ukraine. i think right now, at this particular juncture, it might be good for us to continue our message of support for these people who are seeking a government that is free of corruption and that they think truly represents them. i do not think that is an outrageous stance for the united states of america to take. i see a lot of old friends and enemies here. i want to thank you all for being here today. if there's one thing i want to do, is to alert the american people how oregon a faraway
country is to the united states. >> senator mccain, i think you have accomplished just that i going to ukraine at a critical time as these developers are folding. we cannot thank you enough for coming back here. as fred mentioned, we had the honor of hosting the senator several times. i will say, each time, you have added to the conversation. you have delivered a important messages, whether it has in on the future of an alliance, syria, democracy promotion, and now on ukraine. for that, we are grateful for your strong voice on these issues and for your principled leadership. we are focusing on what the transatlantic community can still do and our values here. as the senator pay tribute, it sounds like you had a chance to meet a ukrainian pop star from the eurovision song contest, we will play a live stream on our screen in the lobby.
as you exit, take a look at what is playing on key of right now in kiev right now. there are hundreds of thousands of protesters with those cell phones on. please join me in thanking senator mccain for his time. [applause] >> thank you so much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013]
>> on the next "washington journal was quote we will discuss the fed's bond buyback program. our guest is gregory at grade your advice for preparing 2013 federal taxes and a look at new taxes taking effect asked year. we are joined by the kiplinger's editorial director. washington journal, live at 7:00 a.m. eastern on c-span. >> the thing i care about most it more of a museum with more pieces of beautiful
furniture that along to old residents. most of what is here now dates from 1902. >> why isn't there more antique furniture? i would have thought they would have been collecting this since the beginning of the republic. >> the thing is about thomas jefferson did the most one whole thing putting in beautiful furniture. the sad thing is the war of 1812, everything was earned and they had to start piecemeal since then. every president who came could sell what he didn't like. these to have auctions in the president could change the decor if he wanted. president grant had the blue room violet. finally, that was all stopped at time of theodore roosevelt in 1902. >> first ladies, influence and
image, season two. weeknights at 9:00 on c-span. >> next, the outgoing federal reserve chairman, ben bernanke, giving his last scheduled news conference with reporters. he talked about the central banking system's ongoing operations, including the recent news it would be tampering down its practice of purchasing bonds, otherwise known as thetitative easing. committee decided, starting next month, to modestly reduce the pace at which it is increasing the balance sheet. the current near zero range for the federal funds range target likely will remain appropriate after the unemployment rate declines below 6.5% -- especially if projected
inflation runs below the long- term goal. today's actions reflect the decision that the economy is making progress but that it has much farther to travel before conditions can be judged normal. the economy has been expanding at a moderate pace. we expect that growth will pick up in coming quarters, helped by accommodative monetary policy and waning fiscal drag. the recovery clearly is far from complete, with unemployment still elevated and with underemployment and long-term unemployment still major concerns. we have also seen ongoing declines in labor force participation, aging of the population, but also discouragement on the part of potential workers. inflation has been running below the objective of 2%. inflation below its objective could pose a risk to economic
performance. this outlook is probably consistent with individual economic projections submitted in conjunction with this meeting. as always, each participant's projections are conditional on their own view of appropriate monetary policy. rejections for increases in gross domestic product of a central tendency of 2.2% to 2.3%. rising to 3.8% next year -- with similar growth estimates for 2015 and 2016. the unemployment rate will continue to decline. the central tendency of projections as it falling to between 6.3% and 6.6% in the
fourth quarter of 2014 and then to between 5.3% and 5.8% in 2016. participants continue to see inflation running below projections for a time. the central tendency projections are rising to 1.4% to 1.6% next year. let me know return to our decision to reduce the pace of asset purchases. when we began the program, we said that we would continue purchases until the outlook for the labor market had improved substantially in the context of price stability. we have seen a meaningful progress in the labor market. since we began the program, the economy has added about 2.9 million jobs and the unemployment rate has fallen by
more than a percentage point. for comparison, when we started the program, we saw the unemployment rate remaining at around eight percent through 2014. nonfarm payrolls have been increasing at a pace of about 200,000 jobs per month. the unemployment rate has fallen by 0.6% since june. household spending is picking up. we expect economic growth to be strong enough to support further gains. the risks around the forecasts of growth in unemployment have become more nearly balanced rather than tilted at the inception of the program. we have been purchasing $85 billion per month, as you know.
starting in january, we will be purchasing $75 billion of securities per month. it is important to note that even after this reduction, we will still be expanding our holdings of long-term securities at a rapid pace. we will continue to roll over maturing treasury securities and reinvest treasury payments into agency mortgage-backed securities. our sizable and still increasing holdings will continue to put downward pressure on long-term interest rates, support mortgage markets, and make financial conditions more accommodative. it will help move inflation back toward the objective. and support the labor market. the monetary reduction reflects the belief that progress toward economic objectives will be sustained. if the incoming data broadly
support the committee's outlook for inflation, we will reduce in further measured steps at future meetings. of course, continued progress is by no means certain. consequently, future adjustments will be deliberate and dependent on incoming information. asset purchases remain a useful tool that we are prepared to deploy as needed to meet our objectives. with unemployment still well above the normal rate, and with inflation continuing to run below the long-term objective, highly accommodative monetary policy remains appropriate. to emphasize the commitment for as long as needed, forward guidance was also enhanced today. the committee has said that the low target range for the federal funds range would be appropriate at least as long as the unemployment rate remained above 6.5%.
inflation is expected to be no more than 0.5% above the long- term goal. we have emphasized that these numbers are thresholds, not triggers. crossing a threshold would not lead automatically to an increase, but would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase. with many participants projecting that the 6.5% unemployment threshold will be reached by the end of 2014, the committee decided to provide additional information about after the threshold is crossed. based on the current assessment, which is informed by a range of indicators, the committee now anticipates it will likely be appropriate to maintain the current federal funds rate target well past the time that the unemployment rate declined
to below 6.5%. especially if inflation continues to run below the goal. this expectation reflects our assessment based on a set of indicators that there will still be a said stitch amount of slack in the labor market. this continuing slack imposes heavy costs on the unemployed and underemployed and their families and reduces our nation's productive capacity, warranting our ongoing, highly accommodative policy. but the prospects for inflation provide another reason to keep policy accommodative. the committee is determined to avoid inflation that is too low, as well as inflation that is too high. it anticipates keeping rates until rates moved back to their objective. although the central tendencies
projected the unemployment rate encompasses 6.5%, 15 out of 17 participants do not expect a rate increase until 2016. for all participants, the projection is 75 basis points at the end of 2015 and 1.75% at the end of 2016. reflecting to live output for the job market, the committee decided to reduce the monthly pace it is adding to the monthly securities on its balance sheet. if incoming information support further progress towards its objectives, the committee is likely to reduce the pace of monthly purchases in future meetings. however, the process will be
deliberate and data dependent. asset purchases are not on a preset course. the fomc provided additional guidance on future short-term interest rates, stating the pass to get -- target is the time when a false past 6.5%, especially if inflation runs below 2%. the federal reserve's enhanced guidance and its substantial and increased holdings of longer- term securities will ensure monetary policy remains highly accommodative am a consistent with the pursuit of its mandated it is of maximum employment and price stability. thank you. i will be glad to take any questions. >> thank you. today was the first reduction in asset purchases and you said future reductions will eckley incur measured steps but are not on a predetermined course.
can you tell us about the framework you will use to determine the size and timing of a reduction? you said you expected the program to end altogether by the end of next year. is that still a likely scenario? take i said, the steps we will be dated ended. if we are making progress in terms of inflation and the job gains i imagine we will continue to do, at each meeting, a measured reduction, that would take us late into the year, certainly not by the middle of the year. if the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two. on the other side, things pick up, we could go a bit faster. formy expectation is similar moderate steps going up the word throughout most of 2014.
>> thank you. when you say similar moderate steps going forward, is 10 billion and increment people should anticipate? if equal amount of mortgage backed securities and treasuries -- finally, when you say well past the unemployment rate of 6.5%, why not pick a number? why say well past? >> sure. on the first issue of 10 billion , we say we will take further modest steps subsequently, so that would be the general range. emphasize we are going to be dated ended and we could stop purchases if the economy disappoints, we can pick them up if the economy is stronger. in terms of mbs versus treasuries, we discussed that issue and the general sense of
the committee was equal or approximate-- reductions is the sensible way to do it. it doesn't make a great eel difference in the end how much we hold, so that was going to be our strategy. on the issue of another number, the unemployment rate -- let's talk first about the labor market condition. about the labor market conditions -- the unemployment rate is a good indicator of the labor market. it's probably the best single indicator we had. ve. we were comfortable setting 6.5% unemployment rate at the point where we would look at a more broad set of labor market indicators. precisely because we don't want to look just at the unemployment rate, once we get to 6.5, we want to look at hiring, quits, vacancies, participation, long- term unemployment ,etc, wages -- we could not put it in terms of another unemployment rate level specifically. i expect there will be some time
past the 6.5% before all of the other variables we are looking at will line up in a way that will give us confidence that the labor market is strong enough to withstand the beginning of increases in rates. the survey of economic projections which were distributed our individual assessments and not the collective committee view but it gives you some sense of current expectations about the length of time. the sep shows the 6.5% as expected by a large number of people to be reached at the end of next year. then the first rate increases according to thedots chart take place at the end of 2015. that is the order of magnitude people are expecting. i emphasize that it will depend on our being persuaded that across a broad range of
indicators, the labor market is sufficiently strong and we could begin to withdraw accommodation. >> mr. chairman, the fed is going through a transition next month. can you talk about the role that janet yellen played in formulating the policy that is being laid out today and what kind of consistency the public can expect as we go into her tenure am assuming she is confirmed emma with the program you are laying out today. will it carry on under her leadership? >> yes, it will. i have always consulted closely with janet well before she was named by the president. i consulted closely with her on these decisions as well. she fully supports what we did today.
>> mr. chairman, your inflation forecasts never get back to two percent in the time horizon you have covered here after 2016. why should we believe the fed has asymmetric inflation cycle and why should we believe you have an optimal control policy. that would imply inflation going a bit above targets. >> again, these are individual estimates. we do think that inflation will gradually move act to two percent and we allow for the possibility, as you know in our guidance, that it could go as high as 2.5%. even though inflation has been quite low in 2013, let me give you the case for why inflation might rise. first, there are special factors such as health care costs and
some other things that have been unusually low and might be reversed. secondly, if you look at the fundamentals for inflation including inflation expectations whether measured by financial markets or surveys, if you look at growth which we now anticipate will pick up in the u.s. and internationally, if you look at wages which have been growing at two percent and a little bit higher according to many indicators, all of these things suggest inflation will gradually pick up. what i tried to emphasize in my opening remarks and is cleared our statement is that we take this very seriously. it's not easy -- inflation cannot be picked up and moved where you wanted. it requires some luck and some good policy. we are very committed to make sure inflation does not stay too low and we are continuing to monitor that carefully and take whatever actions are necessary to achieve that.
under optimal control, it would take a while -- inflation can be quiteinertial and take some time to move and the responsiveness of inflation to increasing economic activity is quite low. given an environment where we have falling all prices -- falling oil prices and downward forces on inflation, it's difficult to get inflation to move quickly to target. we are, again, committed to doing what is necessary to get inflation back to target over the next couple of years. >> there has been a great deal of discussion in your profession about the potency of policy at the zero boundary. it's very striking that inflation has fallen while qe3 has been in place in the economy continues to under shoot the fmoc forecast. the simple question is -- are you giving up?
have you reached the limit of your policy tools and is there nothing more you can do? the economy is still running way below the trendline that existed before the financial crisis. >> everything depends on what benchmark you compare it to . i said last year that monetary policy was not a panacea. it could not solve all our problems. in particular, it cannot do anything about a slowing of potential growth which appears to have happened to some extent. it cannot do much or anything about fiscal policy which is working in the opposite direction. given those things, and think the outcomes we have had are perhaps not as bad as you might think. in particular, as i've mentioned many times, the congressional budget office assessed the fiscal drag in 2013 as being 1.5 percentage points of growth. we look like we will get in the
low 2 actual growth. the monetary policy appears to have succeeded in offsetting some of that fiscal drag. we were not sure we can accomplish that. we are certainly not giving up. we intend to maintain a highly accommodative policy. nothing we did today was intended to reduce accommodation. we will still be buying assets at a high rate and increasing our balance sheet and holding onto those assets and our guidance today, we strengthened our guidance to make sure we keep the key rates low, well beyond the unemployment rate of 6.5%. >> was a close call -- was it a close call in the vote today given what you have said about the outlook and your forecast?
was there a lot of debate on whether to start tapering now or wait longer and wait for more data? >> certainly, it was an important decision and we debated quite extensively. that being said, we asked did we feel comfortable to say we had met the criteria we set in 2012 and that criterion was the labor market. if you look at the cumulative improvement, or if you look at recent numbers on employment and unemployment and also in terms of growth, we are seeing encouraging numbers in terms of household spending numbers. fiscal drag was reduced. you will see we reject a small pickup into next year. there was a reasonable expectation first that the recent gains in the labor market would continue we are just beginning this process now. it is true that while we have passed improvement on the labor market, there is a question about inflation which is a bit of a concern as we indicated in our statement.
we take that very seriously and if inflation does not show signs of returning to target, we will take appropriate action. >> now that you have introduced tapering into the system, if the economy were to stumble again in the future, would you recommend or have you discussed with your colleagues, increasing bond buying in the future and have you considered any alternative measures -- more direct measures into the economy -- if it stumbles again? >> will kind of stimulus to you mean? >> anything you would not buy back from the banks? >> in terms of the legal authorities that the federal reserve has, if we could ask for it.
>> now that you have introduced tapering into the system, if the economy were to stumble again in the future, would you recommend or have you discussed with your colleagues, increasing bond buying in the future and have you considered any alternative measures -- more direct measures into the economy -- if it stumbles again? >> will kind of stimulus to you mean? >> anything you would not buy back from the banks? >> in terms of the legal authorities that the federal reserve has, if we could ask for it. we are getting into a fanciful discussion. our basic tools are asset personages we are allowed --
asset purchases. we are not allowed to buy corporate or other things the way many central banks are. with interest rates near zero, we can manage our forward guidance. i think that has been effective and we could probably do more with that but there are limits to that. beyond a certain point, markets may not accept -- may not view the long distance way ahead guidance as being credible. we can change the interest rate we pay on the reserves which is something we have talked about. the other kind of thing -- the only other thing i can think of that amounts to a direct infusion into the economy is actions similar to the british funding for lending program. we could do something like that and we looked at that because we have a discount window to banks.
however, different from europe and the uk, here, our banks are flush with liquidity and plenty of cash on hand. they owe lots of reserves, of course and so our sense is that they would not have a take up on the program under the current conditions. we do not have the authority to lend directly to small businesses or other types of institutions. i don't think tight credit is the major problem. what we have is firms are either not looking for credit or it their balance sheets are not strong enough that they pass creditworthy screens at the bank. we have a range of things we can do but we are already being
really aggressive, i think. under some circumstances, yes. >> [inaudible] >> i have a narrow question and a broader question. did the changeover and they should play any role in the decision on tapering? did you have a preference to get it started before you left? what do you think teachers of monetary policy will have to say about your eight years at the federal reserve? >> the answer to the first question is no. the answer to the second question is i will be interested to see. i hope i live long enough to read the textbooks. what we showed -- there have been two big changes, more than two but to that i would cite at the fed in the last few years. the result in many ways of the crisis and the first is that the
federal reserve has rediscovered its roots in the sense that the fed was created to stabilize the financial system in times of panic. we did that and we used tools that were analogous in spirit to what the central banks have done for hundreds of years. we adapted it to a modern financial system. the other thing that was unique, largely unique about this period, is that we were trying to help the economy recover from a deep recession at a time when interest rates were essentially zero in required us to use other methods, the most prominent one was forward guidance and asset purchases, neither of which is entirely new but clearly, unless you put aside the depression were monetary policy was pretty passive, this is the first -- one of the first examples of aggressive monetary policy taking place in a near zero
interest rate environment. we are now seeing japan and the uk and other companies -- other countries also taking similar approaches and i think that will be an issue that monetary historians will be interested in exploring as well as monetary theorists and imperial studies. --empirical studies. >> with one hand, you are giving the economy one thing by telling us or signaling that you may keep interest rates lower for longer than we previously thought. with the other hand, you are taking something away by reducing the large-scale asset purchases. if you think that over all this is maintaining the level of monetary accommodation steady, is that a sign that the decision to reduce the asset purchases is really to lead less about an improved outlook for the economy and perhaps more
about the concerned that the asset purchases are less effective or might be fueling bubbles? >> as i said before, asset her kisses are a supplementary tool. our main tool is interest rate policy. the reason that asset purchases are supplementary tools is it is much less familiar. we have less ability to calibrate how big the effects are. it's also true that as the balance sheet of the federal reserve gets large, managing that balance sheet, exiting from that balance sheet, becomes more difficult. there are concerns about effects on -- a fax on asset prices but that another thing that future monetary economist will want to look at carefully. our view was that in september of 2012, we had interest rates already low. they were expected to stay low for a good long time.
the economy was faltering and we needed an additional boost. we brought in the asset purchase program again. we put in a specific objective which is substantial improvement in the outlook for the labor market. our sense was that once that inter-mediate objective was obtained, as the economy had grown and was moving forward, at that point, we could begin to wind down the secondary, supplementary tool and achieve the same amount of accommodation using interest rates and forward guidance. i want to reiterate that this is not intended to be a tightening. don't think there is in place and problem or anything like that. on the one hand, asset purchases are still going to continue and we will still build our balance sheet. the total amount of assets we acquire are certainly more than what was expected in september,
2012. we will have a very substantial balance sheet which we will continue to hold. now we have also clarified our guidance that we will be keeping rates low well past unemployment of 6.5%. we are trying here to get a high level of accommodation. it is true that the purchases we view as supplementary to the interest rate policy. but again, the action today is intended to keep the level of accommodation more or less the same overall and enough to push the economy forward. >> in an earlier response, you laid out the argument about why the committee did not lower the 6.5% unemployment threshold. is that conversation over? have you all put off the table changing the threshold? have there been further
discussion on perhaps adding a lower bound to the inflation target? on inflation specifically, what tools or actions could the committee take if inflation continues to run below your target or falls further. >> i would not expect any changes in the very near term. we want to see how much accommodation we have and whether it's sufficient and whether the economy continues to grow and inflation moves as we anticipate. there are things we can do. we can strengthen the guidance in various ways. while the view of the committee was that the best way forward today was in a more qualitative approach which incorporates elements both of the unemployment threshold and the inflation floor, further strengthening would be possible. that is something that has not
been ruled out. asset purchases are still there to be used. we do have tools to manage a large balance sheet. we have made a lot of rugrats on that. -- we have made a lot of progress on that. we have high accommodation at a slower pace and are interest rate policy, we do have other things we can do if we need to ramp up again. that being said, we are hopeful that the economy will continue to make progress and we will begin to see the whites of the eyes of the end of the recovery and the beginning of a nor that of a more normal period of economic growth. >> some members of your staff published a paper earlier this fall arguing that in times of high unemployment and when some of that unemployment is calcifying into disengagement, there's an argument for monetary policy to be more aggressive.
yet you are now announcing that you will do less rather than more. the fed has done it twice before and has regretted the decision. can you talk about why you are not erring on the side of doing more? >> again, we are not doing less. we will see how accommodation shakes out. while we are slowing asset purchases a bit, again, we expect total pounds she to be quite large and maintained at a large level for a long time. we expect to keep rates low for a very long time. we are providing a great deal of accommodation to the economy. i agree with your observation and the observation of the paper that you cited that there is a case for being particularly aggressive. i think we have been aggressive to try to keep the economy growing and we are seeing progress in the labor market. i would dispute the idea that we
are not inviting a lot of accommodation to the economy. >> given the billions of dollars that the fed has put into the economy over the years, do you see a leading reason why the economy has not created more jobs? >> we have been -- it's been about a little over four years now since the recovery began. it's been a slow recovery. there are a number of reasons for that. that is something for economists and historians to grapple with but there is number of factors which have contributed to slower
except for 2009 we had a tight .iscal policy state local and federal -- at the sameed point in this recovery, the change in state and local and federal government workers is - 600,000. it is one million workers different in how many people were employed at all levels of government. tightenedicy has been
-- tight and contractionary. that being said, we have been disappointed in the face of growth and we do not fully understand.why. some of it might be a slower pace of underlying potential. there may have been some bad luck. but compared to other advanced countries, europe and the u.k. and japan, the u.s. recovery has been better than most.it hasnot been good or satisfactory. we still have a labor market where it is not easy for people to find work. a lot of people cannot get the experience into the labor market. given all of the things that we have faced, it is perhaps in retrospect, somewhat tepid. >> thank you. you talked a bit about risk of
policy. congress is set to pass a budget deal. they have not done much to reduce the deficit. it looks like they're not going to do anything until after the next presidential election. could you talk a little about that? are they pressing for a bigger deal and reducing the u.s. debt burden? thank you. >> i do not address specific fiscal action. i will say a couple of things. one is relative to where we were, it is nice that there has been a bipartisan feel and that it looks like in the past it passed in both houses of congress.
it is directionally what i have recommended in testimony on the which is that it eases the fiscal restraints in the next couple of years where the economy needs help to finish the recovery. in place of that, it achieves savings further out in the 10 year window. those things are positive things. of course, there is more work to be done. i have no doubt about that. it should be a better situation than what we had in september and october. i think it would be good for confidence and fiscal policy and congressional leaders to work together, even if the outcomes are small as this was. it is a good thing that they are working cooperatively and making some progress.
>> chairman bernanke, as you look back on the regulatory reform over the last several years, the rules that have been completed and will have yet to be finalized, what rules would you have liked to be seen as tougher? as someone that has been a steward of the financial crisis and the reform efforts, do feel that the safeguards are in place and that the system is safer? >> the system is certainly safer. one indication of that is amount of capital that large banks hold. for example, on the capital side, we have imposed requirements that are much tougher for the large banks. we have imposed -- there is the use of stress testing. we try to see whether banks have
enough capital not only to deal with normal fluctuations, but to deal with this of your combination of a sharp downturn in the economy and with bad financial conditions. that has been a very important test of both of banks to survive a bad situation and also their ability to measure their risk at which is something that was very efficient going into the crisis. beyond that, we're looking at a leverage ratio for it that we expect to complete fairly soon. there is a possibility of having debt required at the holding company to assist in a resolution we're looking at capital to -- backstop firms that rely heavily on short term wholesale funding. there is a much stronger capital oriented drive at this point to
strengthen our financial system. that's one dimension. there is liquidity and other aspects. it does not really up to me to say whether these things are tougher not. there are observers who are writing and thinking about this. they will have their opinions. i guess what i would say about that is that we are not done. we still have some important rules to complete. as we get these will stun and implement them, i'm sure there will be a difference in the system. whether more needs to be done, i think that is a question. we will be working on this for some time. >> peter cook a bloomberg television. thank you for holding this news conference. i hope you will encourage your
successors to hold more of them. one thing that will be happening next year according to fed chairman of that house a finance committee is a full review of the federal reserve. is that the structure of the fed and the mission of the fed and the mandate of the fed? i want to know if you might be willing to impart some final words of wisdom as they consider possible legislative changes.two members of congress. what if anything are they due to the structure of the fed reserve that might help but policymakers in the future? do you think that is still?do you think the dual mandate is merited? is there a decision with the benefit of hindsight that you would do differently? one change perhaps in the decision-making process that you think would have made a difference over the last eight years?
>> on the centennial review, one of the things that i am proud of and have tried to accomplish over the last eight years is to increase the transparency of the fed and to increase the accountability of the fed. you mentioned trips to capitol hill. i have testified many times, as have a number of colleagues. there is this notion that the fed is not audited or has had all kinds of secret books. as you know, we have complete openness to the general accountability office. we have and i.t. inspector general of our own. we have a private accounting firm that does all of the books and has tough standards. we publish regular reports and all of that. we are very open. we are by all means willing to
work with congress to see if there's anything that they think might be done better or in a more effective way. we are open to doing that. i hope that those reviewing the central bank will of course recognize that central banking is an old activity. the 17th century is when the swedish swiss bank and the bank of england began operation. we know a lot of central banking. there are a lot of experts on central banking and monetary -- policy. every major country has a central bank. we are not starting from scratch. there are a lot of people with expertise. we are bringing in serious people who understand these issues and can make good suggestions. there are a range of different mandates around the world. there are single mandate and
dualmandates, etc. it is our sense that a dual mandate has served us well, in particular, the fed has been able at times to speed the recovery from recession and help the people back to work more quickly. we cannot do anything about long run employment opportunities, but we can help the economy recover more quickly. at the current moment, it doesn't really matter whether we have one mandate or two. we are below our inflation target. unemployment is above for we would like it to be. both sides are pointing exactly in the same direction which is to provide strong accommodation to the economy to help it recover. looking in retrospect, i think that is a hard question. every decision you make is done in real-time and with whatever you know at the time. whatever the experts are telling you about any particular issue,
obviously we were slow to recognize the crisis. i was slow to recognize the crisis. in retrospect, it was a traditional classic crisis, but in a very different guise. we have made it more difficult to see. where there are not we could have prevented or done more about it, that is another question. house prices were declining.by the time i became chairman. most mortgages have been made. obviously it would have been good to recognize that earlier and try to take more preventive action.
that being said, we have done everything we can think of to take actions to stabilize the economy and the financial system. going forward, we are much better prepared for dealing with these kinds of events that when i became chairman in 2006. >> kevin hall. i would like to indulge in a local question and a broader question. there is a lot of interest as to whether you will retire and write a kiss and tell book. do you envision a role for yourself in south carolina host- chairmanship? your predecessor, dr. greenspan, and his new book argues that long-term investment -- one of the reasons we may be seeing a slow economy is because companies are investing in the sorts of things that make them leaner and get by with fewer people, but not seeing expansion. does it argue for more drastic
action on the short-term? >> do you own the charlotte observer? [laughter] most of my family is in north carolina. i have a number of members in charlotte and also in durham. my wife and i will spend christmas vacation in north carolina. my uncle still lives in dylan. he is 85 and very chipper. [laughter] ok, good. for the immediate future, my wife and i will stay in washington for a bit of time. and that investment, there are a lot of reasons why investment is weaker than we would like. the first most important reason is that the recovery is slow. investment is driven by sales and the need for capacity.
with a slow-growing gdp and economy, most firms do not feel pressure on their capacity to do major projects. there's is also a variety of uncertainties out there. we have fiscal regulatory acts and so on that no doubt affect some of these calculations. we hear that from our participants around the table as a report from local districts. there are a lot of factors. usually you think the way that a deficit or long-term debt would be true of what is crowding out that is raising interest rates. high interest-rate is not our problem right now. there's plenty of credit available at low interest rate. we intend to provide that help the economy aero and to-- economy grow andstimulate investment
spending. i think that it will take faster overall growth to get firms trying to expand capacity and i think if consumer spending increases as we think it will and export increase as they seem to be doing, then we will probably see greater investment as well. >> mr. chairman, it has been a pleasure covering you. one of the factors that your policy statement says will be considered in assessing the future pace of asset purchases is the cause and efficacy of those purchases. to what extent or you might say cost-benefits in the calculation would affected his decision?to what extent did that affect today's decision? going forward and looking on the
costs side, someone mentioned bubble. to what extent with the whole consideration of threats to financial stability come into play? >> i will answer your question. and maybe do a better job on the other question as well. we do think of asset purchases as a secondary tool. we do think the cost-benefit ratio on the balance sheet. as it gets large, it moves in a way --that is less favorable. the costs involved managing the exits from that. it is very unlikely that the fed will have losses in a comprehensive sense.
we have stripped profits back to the treasury in 2009. that is about as much as we have delivered to the treasury between a timeline combined. clearly, the fed is making a good bit of money for the tax payer and for the government. it could be as interest rates rise that we would be in a situation of not -- to the treasury for a couple of years. that would create problems no doubt for the fed in terms of congressional response. there are issues of how well we understand and can manage the effects of asset purchases. importance difference between asset purchases and interest
rates is that asset purchases work i affecting what is called a term premium, which is essentially part of interest- rate that investors require as compensation for holding longer- term securities. we do not understand very well what moves the term premium. we saw last summer a big jump in the term premium that was very destabilizing. it created a lot of stress in the financial markets. there are a number of reasons why asset urges is while effective have been important and are less attractive than interest-rate policy. that is why we have relied primarily in interest-rate use asset purchases as a supplement. i think that there are some financial stability issues involved there. we need to look at the possibility that asset purchases have led to pricing in certain markets by excessive leverage our excessive risk-taking.
we do not think that has happened to an extent that is a danger to the system other than when those positions unwind like you saw over the summer in which they can create some bumpiness and interest rate markets. we try to address it first and foremost by making sure it that the financial system is as strong as possible. that way banks can withstand losses as much as possible and using whatever other tools he have to try to avoid bubbles or other kinds of financial risk. that being said, i do not think that you can completely ignore financial stability concerns. we cannot control them are quickly.-- as quickly. -- perfectly.
there might be situations when financial and stability has implications for our mandate. it is a very complex issue. there'll be many years before central things have completely worked out exactly how best to deal with financial stability questions. you do have to pay some attention to that.the first line of defense is regulatory. i will tell you at this point though that asset purchases program is well on me that economic and deck this.-- is well on its way to meeting our economic objective and i'm very pleased that we are able to overtime wind down this program and slow the pace of purchases because we have reached our objective rather than because the costs are efficacy issues became
important. i think in this case, that is not a concern at this juncture for this program. >> i'm with cnn. you cited a study that said the first $2 trillion in asset purchases and boosted gdp by about 3% an increased price spectrum employment by 2 million jobs.-- private sector employment by 2 million jobs. now your balance sheet is nearing $4 trillion. i'm wondering if you feel a third round of asset purchases gets you as much bang for your buck? do you still think the first study offered a reasonable estimate? >> it is very hard to know in terms of the study. you're try to measure these effects. you have to ask yourself, what would've happened in the absence of policy? it was an interesting study, but it was on the upper-end. that being said, i'm pretty
comfortable with the idea that this program did in fact create jobs. i cited some figures. to repeat one of them, the blue chip forecast for unemployment in this current quarter made before a program were at a certain percentage. that was before the fiscal cliff deal that created even more fiscal headwinds for the economy. of course, we are at 7%. asset purchases made some of the difference. it has helped create jobs. you can see how it works. as a purchases brought down interest and mortgage rates. it brought down car loan interest rate and you have seen a response in those areas as economy has done better. moreover, as has been done in